- There’s a chance the US may not tip into recession this year, according to Wells Fargo.
- The bank said it sees “fertile ground” for an economic recovery in the second half.
- Strategists pointed to a handful of things that suggest the US can avoid a downturn in 2025.
Trump’s latest tariffs and the massive sell-off in stocks have ignited fears of an economic downturn in 2025 — but one bank says there’s still reason to believe that the US may not be barrelling toward a recession this year after all.
Strategists at Wells Fargo on Tuesday said they’re seeing a handful of promising signs that suggest the US economy may be able to avoid a downturn this year, despite heightened concerns on Wall Street amid the latest market chaos.
Wells Fargo said it lowered its expectations for US GDP growth this year, but the hard economic data remains strong, adding that some of the economic weakness so far this year can be brushed off as “payback,” considering how strong the economy performed in 2024.
“However, key economic supports remain intact, in our view, and can limit the slowdown. We see fertile ground for a moderate second-half growth recovery,” strategists wrote.
Here are the five things that are offering a glimmer of hope as uncertainty runs high:
1. Income has grown steadily, even accounting for inflation
Consumer spending has shown signs of slowing in recent months, but Americans spending less than they used to is being supported by higher income growth. Inflation-adjusted disposable personal income has grown steadily in recent years, reaching an all-time-high in the fourth quarter of 2024, according to Federal Reserve data.
Job growth also remains solid. The economy added a more-than-expected 228,000 payrolls last month, while the unemployment rate remained close to historic lows. The resilient job market is another factor that's "cushioning" consumer purchasing power, the bank said.
Household wealth has climbed
Stocks were deep in correction territory last week, with the S&P 500 and the Nasdaq 100 being pulled into official bear market territory amid the broader market sell-off.
But household wealth was elevated prior to the sell-off, which has given Americans, especially higher-income Americans, some breathing room. US household net worth climbed to an all-time high of $160 trillion in the fourth quarter of last year.
"Past windfall gains in stocks and other financial assets are sufficient to propel upper-income spending, in our view, especially as pent-up demand builds into the warmer months," Wells Fargo strategists said.
3. Long-term interest rates are down
Borrowing costs in the economy have eased in recent months, which is a positive for US consumers.
The yield on the 10-year US Treasury bond, which is reflective of long-term rates in the economy, slumped to its lowest level since October last week amid the market sell-off.
Mortgage rates have also eased. The average 30-year fixed rate ticked lower to 6.6% in the last week, according to Freddie Mac data, well below the peak of 7.79% in 2023.
"Recent declines in long-term interest rates have already helped stabilize credit-sensitive sectors like housing," the bank said.
4. Financial markets remain liquid
There's less money sloshing around in financial markets than there was prior to the sell-off. But liquidity levels still remain "more supportive" compared to levels seen prior to previous recessions, Wells Fargo said.
"Specifically, bank reserves are plentiful," strategists said, adding that credit spreads, a reflection of the perceived risk to holding debt in the corporate bond market over a benchmark, also remain "well shy" of levels previously associated with financial stress.
Markets, though, remain tepid on the outlook for 2025, with most investors feeling wary after the latest round of volatility. According to the AAII's latest Investor Sentiment Survey, 61% of investors said they felt bearish on the outlook for stocks over the next six months.
Other banks, like Goldman Sachs and JPMorgan, have raised their recession forecasts in recent weeks, citing Trump's trade war as the main factor that could push the US into a contraction.